FSOC Releases 2023 Annual Report
In December, the Financial Stability Oversight Council (FSOC) released its annual report highlighting its areas of focus in 2023, financial market and regulatory developments, and potential emerging threats to U.S. financial stability. The report highlights several vulnerabilities in the U.S. financial system, including (but not limited to):
- Regional Banks
- Investment Funds
- Cybersecurity
- Treasury Markets
- Third-Party Service Providers
- Use of Artificial Intelligence (AI) in Financial Services
A Davis Polk client alert noted that the report, “identified potential risks to financial stability stemming from the use of leverage by certain hedge funds and the liquidity and maturity transformation that money market funds (MMFs), open-end mutual funds, and collective investment funds engage in.” At the meeting, Securities and Exchange Commission Chair Gary Gensler noted, “[w]e continue work regarding proposals on open-end fund liquidity management, including work with bank regulators on potential similar rules for collective investment funds.” Interestingly, FSOC removed “Provision of Financial Services by Nonbank Financial Institutions” as a vulnerability but noted concerns with respect to private credit. On AI, FSOC recommended that while existing requirements may already apply to AI, market participants and regulatory authorities should continue to monitor developments in AI.
Click here to read the 2023 FSOC Annual Report.
Click here to read a client alert from Davis Polk.
Click here to read Chair Gary Gensler’s remarks at the FSOC meeting.